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** **

 

** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**(MarkOne)**

** **
| **     ****x** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
|-----------------------------------------|---------------------------------------------------------------------------------------------------------|

 

**For the quarterly period ended March 31,2009**

 

**or**

** **
| **     ****o** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
|-----------------------------------------|----------------------------------------------------------------------------------------------------------|

** **

**For the transition period from               to              **

 

**Commission File Number: 000-53209**

 

**Adelphia Recovery Trust**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                                                    | ** ** | **11-6615508**                       |
|-----------------------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of incorporation or  organization) |       | (I.R.S. Employer Identification No.) |

 

**919 North Market Street, 17****th**** Floor, PO Box 8705Wilmington, Delaware**

(Address of principal executive offices) (Zip Code)

 

**302-652-4100 Attn: Dean Ziehl**

(Registrant’s telephone number, including area code)

 

(Former name, former address and former fiscal year, if changed sincelast report)

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.  x Yes  No  o

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate website, if any, every interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T during thepreceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files).  o Yes  No  o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seethe definitions of “large accelerated filer,” “accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange Act.

 

| Large accelerated filer o                     |   | Accelerated filer o         |
|-----------------------------------------------|--------|-----------------------------|
|                                          |   |                        |
| Non-accelerated filer  x                 |   | Smaller reporting company o |
| (Do not check if a smaller reporting company) |   |                        |

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).  o  Yes  No  x

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

 

Indicateby check mark whether the registrant has filed all documents and reportsrequired to be filed by Sections 12, 13 or 15(d) of the SecuritiesExchange Act of 1934 subsequent to the distribution of securities under a planconfirmed by a court.  o  Yes No  o 

 

 

 

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ADELPHIA RECOVERY TRUST

FORM 10-Q

INDEX

 
| PART I —  FINANCIAL INFORMATION                                                           |
|-----------------------------------------------------------------------------------------------------|
|                                                                                                |
| ITEM 1. FINANCIAL STATEMENTS (unaudited)                                                            |
|                                                                                                |
| Condensed Balance Sheets as of March 31, 2009 and  December 31, 2008                      |
|                                                                                                |
| Condensed Statements of Operations for the three  months ended March 31, 2009 and 2008         |
|                                                                                                |
| Condensed Statements of Cash Flows for the three  months ended March 31, 2009 and 2008         |
|                                                                                                |
| Notes to Condensed Financial Statements                                                             |
|                                                                                                |
| ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
|                                                                                                |
| ITEM  4. CONTROLS AND PROCEDURES                                                                    |
|                                                                                                |
| PART II                                                                                        |
|                                                                                                |
| ITEM  1. LEGAL PROCEEDINGS                                                                          |
|                                                                                                |
| ITEM 1A. RISK FACTORS                                                                               |
|                                                                                                |
| ITEM 6. EXHIBITS                                                                                    |
|                                                                                                |
| SIGNATURES                                                                                          |
|                                                                                                |
| CERTIFICATIONS                                                                                      |

 

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**PART 1 - FINANCIALINFORMATION**

 

Item1   Financial Statements

 

**AdelphiaRecovery Trust**

**Unaudited Condensed Balance Sheets**

 
| ** **                           | ** ** | **As of  March 31, 2009** | ** **  | **As of  December 31, 2008** | ** ** |
|--------------------------------------|------------|--------------------------------|-------------|-----------------------------------|------------|
| ** **                           | ** ** | ** **                     | ** **  | ** **                        | ** ** |
| **Assets**                           |       |                           |        |                              |       |
| Cash and cash equivalents            |       | $                              | 155,308,729 |                              | $          | 161,057,351 |   |
| Prepaid insurance                    |       | 224,614                        |        | 374,356                           |       |
| Note and accrued interest receivable |       | 5,486,287                      |        | 5,388,781                         |       |
| Total assets                         |       | $                              | 161,019,630 |                              | $          | 166,820,488 |   |
|                                 |       |                           |        |                              |       |
| **Liabilities and net assets**       |       |                           |        |                              |       |
| Accrued expenses                     |       | $                              | 1,417,825   |                              | $          | 550,871 |   |
| Total liabilities                    |       | 1,417,825                      |        | 550,871                           |       |
|                                 |       |                           |        |                              |       |
| Net assets                           |       | 159,601,805                    |        | 166,269,617                       |       |
|                                 |       |                           |        |                              |       |
| **Total liabilities and net assets** |       | $                              | 161,019,630 |                              | $          | 166,820,488 |   |

 

See accompanyingnotes to condensed financial statements.

 

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**AdelphiaRecovery Trust**

**Unaudited Condensed Statements ofOperations**

 
| ** **                              | ** ** | **For the quarter ended  March 31, 2009** | ** ** | **For the quarter ended  March 31, 2008** | ** ** |
|-----------------------------------------|------------|------------------------------------------------|------------|------------------------------------------------|------------|
|                                    |       |                                           |       |                                           |       |
| **Revenues**                            |       |                                           |       |                                           |       |
| Litigation - court approved settlements |       | $                                              | —     |                                           | $          | 200,206 |   |
| Litigation - other settlements          |       | —                                         |       | 60,000                                         |       |
| Interest income                         |       | 328,912                                        |       | 1,689,819                                      |       |
| Total revenues                          |       | 328,912                                        |       | 1,950,025                                      |       |
|                                    |       |                                           |       |                                           |       |
| **Operating expenses**                  |       |                                           |       |                                           |       |
| General and administrative expenses     |       | 752,324                                        |       | 515,010                                        |       |
| Professional expenses - litigation      |       | 6,134,199                                      |       | 6,480,741                                      |       |
| Professional expenses - administrative  |       | 110,201                                        |       | 724,444                                        |       |
| Total operating expenses                |       | 6,996,724                                      |       | 7,720,195                                      |       |
|                                    |       |                                           |       |                                           |       |
| **Net loss**                            |       | $                                              | (6,667,812 | )                                              | $          | (5,770,170 | ) |

 

See accompanyingnotes to condensed financial statements.

 

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**AdelphiaRecovery Trust**

**Unaudited Condensed Statements ofCash Flows**

** **
| ** **                                         | ** ** | **For the quarter ended  March 31, 2009** | ** **  | **For the quarter ended  March 31, 2008** | ** ** |
|----------------------------------------------------|------------|------------------------------------------------|-------------|------------------------------------------------|------------|
| ** **                                         | ** ** | ** **                                     | ** **  | ** **                                     | ** ** |
| **Operating activities**                           |       |                                           |        |                                           |       |
| Net loss                                           |       | $                                              | (6,667,812  | )                                              | $          | (5,770,170 | ) |
| Changes in operating assets and liabilities:       |       |                                           |        |                                           |       |
| Prepaid insurance                                  |       | 149,742                                        |        | (707,233                                       | )          |
| Note and accrued interest receivable               |       | (97,506                                        | )           | (97,506                                        | )          |
| Accrued expenses                                   |       | 866,954                                        |        | 2,573,418                                      |       |
| Net cash used by operating activities              |       | (5,748,622                                     | )           | (4,001,491                                     | )          |
|                                               |       |                                           |        |                                           |       |
| **Net change in cash and cash equivalents**        |       | (5,748,622                                     | )           | (4,001,491                                     | )          |
| **Cash and cash equivalents, beginning of period** |       | 161,057,351                                    |        | 189,684,573                                    |       |
| **Cash and cash equivalents, end of period**       |       | $                                              | 155,308,729 |                                           | $          | 185,683,082 |   |

 

See accompanyingnotes to condensed financial statements.

 

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ADELPHIA RECOVERY TRUST

 

Notes to the CondensedFinancial Statements – March 31, 2009 (Unaudited)

 

1                                          Background

 

TheAdelphia Recovery Trust (the “ART”) was formed as a Delaware statutorytrust pursuant to that certain First Modified Fifth Amended Joint Chapter 11Plan of Reorganization (the “Plan”) of Adelphia CommunicationsCorporation (“Adelphia”) and certain of its subsidiaries (collectivelythe “Debtor” ). The purpose of the ART is to prosecute the variouscauses of action transferred to the ART pursuant to the Plan (the “Causes ofAction”) and distribute to the owners (the “Holders”) of theinterests in the ART (“Interests”) the net proceeds of such Causes of Action(“Distributions”), according to the relative priorities establishedpursuant to the Plan, subject to the retention of various amounts to fund theprosecution of those Causes of Action and operations of the ART. Pursuant tothe Plan, in addition to the Causes of Action, Adelphia transferred $25 millionin cash to the ART in order to fund the initial expenses of operation.

 

Asset forth in the Plan, the ART is administered by five trustees (the “Trustees”)who are responsible for carrying out the purposes of the ART. Quest TurnaroundAdvisors, L.L.C. (“Quest”) is the plan administrator (in such capacity,the “Plan Administrator”) of Adelphia. Quest and Adelphia together haveagreed to provide certain administrative services to the ART. In order to facilitatethe provision of such administrative services, the ART has appointed Quest asthe trust administrator of the ART (in such capacity, the “TrustAdministrator”).

 

2                                          Basis ofPresentation

 

The accompanying interim unaudited condensedfinancial statements of the ART have been prepared in accordance with generallyaccepted accounting principles in the United States of America (“US GAAP”)and with the instructions to Form 10-Q. As such, they do not include all of the information and disclosuresrequired by US GAAP for complete financial statements.  In the opinion of the Trustees, alladjustments (consisting of normal recurring accruals) considered necessary fora fair presentation of the interim unaudited condensed financial statementshave been included.  These condensedfinancial statements should be read in conjunction with the ART’s auditedfinancial statements as of December 31, 2008. Interim results are notnecessarily indicative of the results for the complete fiscal year.

 

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3                                          Related PartyTransactions

 

The Trust Administrator and Adelphia continue toprovide administrative support to the ART including maintaining electronic dataand paper documents used in prosecuting the Causes of Action, financialreporting and support for Distributions when they might occur (includingmaintenance of data related to the implementation of Plan provisions). Theseservices have and will continue to be provided at no cost to the ART under theterms of various agreements between the Trust Administrator and Adelphia. TheART financial statements do not reflect any amounts for these services.

 

4                                          Causes ofAction and Contingencies

 

Except as set forth below, there have been nomaterial developments in the legal proceedings described in the ART’s Form 10-Kas filed with the SEC on March 10, 2009.

 

Bank Litigation

 

OnJune 18, 2008, the District Court dismissed certain fraudulent transferclaims, voidable preference claims, and equitable subordination anddisallowance claims and entered final judgment on those claims as well ascertain claims dismissed in 2007 by the Bankruptcy Court. The ART timely fileda notice of appeal of that judgment and the appeal is being briefed by theparties in the Second Circuit Court of Appeals.

 

OnMay 6, 2009, the District Court issued an order sustaining the ART’saiding and abetting fraud and breach of fiduciary duty claims; sustaining inpart and dismissing in part the ART’s fraud claim, and dismissing the ART’sfraudulent concealment claims.  The District Court also sustainedavoidance claims against lenders on margin loans to the Rigases.  Underthe current scheduling order, the trial on those claims and the Bank Holding CompanyAct claim will commence on February 22, 2010.

 

Atthis time, the ART cannot predict the outcome of these proceedings or estimatethe possible financial effect of these proceedings on the ART’s financialstatements.

 

Motorola Litigation

 

OnAugust 22, 2007, plaintiffs moved for summary judgment to disallow aportion of the defendants’ claims against certain Adelphia debtors. Plaintiffs’motion is pending. Discovery is ongoing and the bankruptcy court has orderedthe parties to be ready for trial on the claims for equitable subordination andequitable disallowance on May 21, 2009.

 

Atthis time, the ART cannot predict the outcome of these proceedings or estimatethe possible financial effect of these proceedings on the ART’s financialstatements.

 

Sabres Litigation

 

OnFebruary 17, 2009, the District Court for the Western District of New Yorkissued a final judgment granting a permanent injunction against the prosecutionof fraudulent conveyance claims against Key Bank N.A., Fleet National Bank, andHSBC Bank USA, N.A. (collectively, the “Sabres Banks”) by the ART in the BankLitigation.    The fraudulent conveyance claims against theSabres Banks involve Adelphia’s purchase of and payments on certain loans madeby the Sabres Banks to the Buffalo Sabres hockey team.  The ART filed atimely notice of appeal, and the appeal is being briefed by the parties in theSecond Circuit Court of Appeals.

 

Atthis time, the ART cannot predict the outcome of these proceedings or estimatethe possible financial effect of these proceedings on the ART’s financialstatements.

 

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Litigation Indemnification Fund Litigation

 

Discoveryrelated to the JV LIF Claims is ongoing and an evidentiary hearing on themotion is now scheduled for June 9, 2009.

 

Atthis time, the ART cannot predict the outcome of these proceedings or estimatethe possible financial effect of these proceedings on the ART’s financialstatements.

 

5                                          SubsequentEvents

 

Subsequentto March 31, 2009 and through May 7, 2009, there have been no other eventsthat would be material to the financial statements of the ART, including Causeof Action settlements or judgments or Distributions or decisions concerningfuture Distributions.

 

Item 2             ManagementDiscussion and Analysis

 

Overview

 

TheAdelphia Recovery Trust was formed as a Delaware statutory trust pursuant tothat certain First Modified Fifth Amended Joint Chapter 11 Plan ofReorganization of Adelphia and certain of its subsidiaries. The purpose of theART is to prosecute the various Causes of Action transferred to the ARTpursuant to the Plan and distribute to the owners of the Interests in the ART thenet proceeds of such Causes of Action, according to the relative prioritiesestablished pursuant to the Plan, subject to the retention of various amountsto fund the prosecution of those Causes of Action and operations of the ART.Pursuant to the Plan, in addition to the Causes of Action, Adelphia transferred$25 million in cash to the ART in order to fund the initial expenses ofoperation.

 

Adelphiaand certain of its subsidiaries filed for Chapter 11 bankruptcy protection in June 2002.During the bankruptcy, on July 31, 2006 the assets of Adelphia were soldfor a combination of cash and stock in Time Warner Cable, Inc. (“TWC”).In late 2006, representatives of various groups of creditors reached agreementon the allocation and distribution of the cash, TWC stock, other proceeds fromthe sale of estate assets and relative priorities to any Distributions arisingfrom the Causes of Action contributed to the ART. This agreement was embodiedin the Plan, which was confirmed in January 2007 and became effective on February 13,2007 (the “Effective Date”). Under the Plan, the creditors and equityholders of Adelphia and certain of its subsidiaries received one or more of thefollowing: cash, TWC stock, rights to future Distributions up to payment infull and the Interests.

 

TheART will dissolve upon the earlier of the resolution of all Causes of Actionand the distribution of all of its assets to the Holders or the fifthanniversary of its creation. However, the Bankruptcy Court may approve anextension of the term if deemed necessary for the purposes of resolving theCauses of Action and distributing the net proceeds to Holders.

 

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Asset forth in the Plan and the Declaration of Trust for the ART, as amended (the“Declaration”), the ART is administered by five Trustees. These Trusteesare authorized to carry out the purposes of the ART. In particular, theTrustees are responsible for protecting, maintaining, liquidating to cash andmaximizing the value of the Causes of Action contributed to the ART, whether bylitigation, settlement or otherwise.

 

Distributions

 

Pursuantto the Plan and the Declaration, Distributions to Holders are net of any costsand expenses incurred by the ART in connection with administering, litigatingor otherwise resolving the various Causes of Action. Such costs and expensesmay also include fees and expenses of the Trustees, premiums for directors andofficers insurance, and other insurance and fees and expenses of attorneys andconsultants. Distributions will be made only from assets of the ART and only tothe extent that the ART has sufficient assets (over amounts retained forcontingent liabilities and future costs and expenses, among other things) tomake such payments in accordance with the Plan and the Declaration. NoDistribution is required to be made to any Holder unless such Holder is toreceive in such Distribution at least $25.00 or unless such Distribution is thefinal Distribution to such Holder pursuant to the Plan and the Declaration.

 

Distributionswill be made at the sole discretion of the Trustees in accordance with theprovisions of the Plan and the Declaration. As of the date hereof, the Trusteeshave determined the present best course of action is to retain the existingcash in reserve to administer the ART and fund the prosecution of the Causes ofAction. Consequently, there have been no Distributions through the filing dateof this Form 10-Q and none have been planned.

 

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Asof March 31, 2009, the number of Interests outstanding in each serieseligible to receive a Distribution is as follows:

 
| Series RF              |   | 115,000,000   |   |
|-----------------------------|--------|---------------|--------|
| Series Arahova         |   | 722,639,681   |   |
| Series Frontier Vision |   | 86,600,001    |   |
| Series FPL             |   | 25,575,129    |   |
| Series Olympus         |   | 17,000,001    |   |
| Series ACC-1           |   | 4,839,988,165 |   |
| Series ACC-2           |   | 281,933,289   |   |
| Series ACC-3           |   | 119,430,302   |   |
| Series ESL (1)         |   | 17            |   |
| Series ACC-4           |   | 1,790,968,272 |   |
| Series ACC-5 (1)       |   | 458           |   |
| Series ACC-6B          |   | 150,000,000   |   |
| Series ACC-6B1 (1)     |   | 3             |   |
| Series ACC-6D          |   | 575,000,000   |   |
| Series ACC-6D1 (1)     |   | 229,004       |   |
| Series ACC-6E/F        |   | 935,812,456   |   |
| Series ACC-6E/F1 (1)   |   | 277,210       |   |
| Series ACC-7           |   | 217,022,640   |   |
| Series ACC-7A (1)      |   | 1,537,766,752 |   |

 

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(1) For each of these categories of Interests(which include disputed claims), each holder of a disputed claim was awardedone Interest. The number of Interests is expected to change based on theresolution of disputed claims.

 

**Results of Operations**

** **

TheART operates pursuant to the Plan and the Declaration. The ART was formed as aDelaware statutory trust to prosecute various claims originally owned byAdelphia and, if any of the prosecutions are successful or are settled in amanner which provides economic benefit to the ART, to distribute excessproceeds over amounts retained to fund the prosecution of the Causes of Actionand operations of the ART, to the Holders. It is not possible to determine atthis time if there will be any excess proceeds available for a Distribution.

 

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*FirstQuarter 2009 compared to the First Quarter 2008*

* *

Therewere no court approved or other litigation settlements in the three monthsended March 31, 2009.  In the prioryear for the same quarter there were court approved settlement proceeds of$200,206 related to the litigation and bankruptcy claims among Leonard Tow,Claire Tow, related entities, David Rosensweig, Adelphia and the ART.Additionally, there were other non-court approved settlements of $60,000 forthe quarter ended March 31, 2008. Revenue related to Cause of Actionrecoveries is highly variable creating fluctuations in quarterly results andthe variability is expected to continue.

 

Bothquarters ended March 31, 2009 and March 31, 2008 reflect interestincome from the invested cash balances of the ART. The decrease in interestincome of approximately $1.4 million for the quarter ended March 31, 2009compared to the same quarter in the prior year is due to lower invested cashbalances which have been reduced by ART operating costs, as well as reducedinvestment yields.

 

Totaloperating expenses of the ART for the quarter ended March 31, 2009 areapproximately $723,000 less than the same period in 2008 due to reducedprofessional expenses for both litigation and administrative activities,partially offset by an increase in general and administrative costs.Professional litigation costs have decreased approximately $347,000 in thefirst quarter of 2009 as compared to the first quarter of 2008 primarily due toreduced litigation costs in the first quarter of 2009 with respect to the BankLitigation. Additionally, professional administrative costs have decreasedapproximately $614,000 in the first quarter of 2009 as compared to the sameperiod in 2008 primarily due to costs associated with the initial organizationof the ART that were incurred in the first quarter of 2008. Offsetting thesecost reductions, general and administrative costs have increased from the firstquarter of 2008 to the first quarter of 2009 by approximately $237,000. Theincrease was caused primarily by the payment of additional service compensationto the ART Trustees of $230,000 in March of 2009. Additional servicecompensation of $250,000 was paid in the second quarter of 2008, thus affectingthe comparability of the effect of this compensation on the first quarter of2009 versus the first quarter of 2008.

 

Asa result of reduced settlement revenue of approximately $260,000 in the quarterended March 31, 2009, compared to the same period in 2008, and reducedinterest income of approximately $1.4 million, offset by decreased operatingexpenses of approximately $723,000, the ART recognized a net loss of $6.7million for the quarter ended March 31, 2009.

 

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**FinancialCondition and Cash Flows**

 

TheART’s sources of liquidity are from (a) the $25 million transferred to theART by Adelphia pursuant to the Plan on the Effective Date, (b) thesuccessful resolution of Causes of Action and (c) earnings on investedcash balances. Receipts from these sources are used to pay professional andoperating expenses of the ART and to fund Distributions to the Holders afterreserving cash required to pay future professional and operating expenses ofthe ART. After careful evaluation of future financial needs the Trustees havedetermined that a Distribution at this time should not occur. No Distributionshave been made through March 31, 2009 and none are expected.

 

Basedupon cash and cash equivalent balances as of March 31, 2009 totalingapproximately $155.3 million and expected expenses and other potentialdisbursements, the ART does not expect a deficiency in liquidity in the nexttwelve months. Due to the uncertain nature of future revenues and expensesbeyond twelve months, it is not possible to be certain that current liquiditywill be adequate to cover all the future financial needs of the ART. Incurringdebt, creating contingent obligation agreements and seeking methods to reducelegal professional and administrative costs are all strategies that could beundertaken to address liquidity issues should they arise. These strategiescould impact the ART’s ability to maximize recoveries from settlements.

 

Thenature of the ART’s operation does not give rise to capital expenditures andthere are no current or expected commitments for capital expenditures in thenext twelve months. Should a need for capital expenditures arise, the ART wouldfund the requirement from existing assets. Additionally, the ART currently hasno long-term contracts or other long-term obligations.

 

Cashand cash equivalent balances at March 31, 2009 of approximately $155.3million are approximately $5.7 million lower than as of December 31, 2008due to a net loss for the three months ended March 31, 2009 ofapproximately $6.7 million offset by a provision of cash by operatingactivities of approximately $919,000, related to an increase of approximately$867,000 in accrued expenses and the amortization of approximately $150,000 ofprepaid expenses. Uses of cash by operating activities include the accrual ofinterest on a settlement note receivable during the first quarter of 2009 ofapproximately $98,000. Available cash is invested in either FDIC insureddeposit accounts or a federally insured money market fund invested inshort-term U.S. Treasury and government agency securities. The money marketfund manager has elected to participate in the Treasury Department’s temporaryguarantee insurance program for money market funds.

 

**Debt and Other Long-termObligations**

** **

TheART has no debt, capital or operating lease or other long-term obligations andhas no current plans to incur such obligations.

 

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**Cautionary Statement Regarding Risks and UncertaintiesThat May Affect Future Results**

** **

Thisreport on Form 10-Q contains forward-looking statements about thebusiness, financial condition and prospects of the ART. The actual results ofthe ART could differ materially from those indicated by the forward-lookingstatements because of various risks and uncertainties, including, withoutlimitation, the number of and proceeds from litigations and/or settlementswhich are successful, delays in obtaining proceeds, the amount of fundingrequired for the litigations and other operating expenses, economic conditions,changes in tax and other governmental rules and regulations applicable tothe ART, and other risks identified and described in the Form 10-K filedwith the SEC on March 10, 2009. These risks and uncertainties are beyondthe ability of the ART to control, and in many cases, the ART cannot predictthe risks and uncertainties that could cause its actual results to differmaterially from those indicated by the forward-looking statements. When used inthis report the words “believes,” “estimates,” “plans,” “expects,” and “anticipates”and similar expressions as they relate to the ART or its management areintended to identify forward-looking statements.

 

Item 4                                                                Controls andProcedures

 

*Evaluationof Disclosure Controls and Procedures*

 

TheART maintains disclosure controls and procedures that are designed to ensurethat information required to be disclosed in its reports filed under theExchange Act is recorded, processed, summarized and reported within the timeperiods specified in the SEC’s rules and forms. Disclosure controls andprocedures include controls and procedures designed to ensure that suchinformation is accumulated and communicated to ART Trustees and the TrustAdministrator as appropriate, to allow timely decisions regarding requiredfinancial disclosure.

 

The Trustees and the Trust Administrator havecompleted an evaluation of the effectiveness of the design and operation ofdisclosure controls and procedures as of the quarter ended March 31, 2009.Based on their evaluation of the effectiveness of the design and operation ofthe ART’s disclosure controls and procedures, the Trustees and the TrustAdministrator concluded that as of March 31, 2009, the ART’s disclosurecontrols and procedures were effective.

 

*Limitations on theEffectiveness of Controls*

* *

The Trustees and the Trust Administrator do not expect that the ART’sdisclosure controls will prevent or detect all errors and all fraud. A controlsystem, no matter how well designed and operated, can provide only reasonable,not absolute, assurance that the control system’s objectives will be met.Further, the design of a control system must reflect the fact that there areresource constraints, and the benefits of controls must be considered relativeto their costs. Because of the inherent limitations in all control systems, noevaluation of controls can provide absolute assurance that all control issues

 

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and instances offraud, if any, within the ART have been detected. These inherent limitationsinclude the realities that judgments in decision-making can be faulty, and thatbreakdowns can occur because of simple error or mistake. Controls can also becircumvented by the individual acts of some persons, by collusion of two ormore people, or by management override of the controls. The design of anysystem of controls is based in part upon certain assumptions about thelikelihood of future events, and there can be no assurance that any design willsucceed in achieving its stated goals under all potential future conditions.Over time, controls may become inadequate because of changes in conditions ordeterioration in the degree of compliance with associated policies orprocedures. Because of the inherent limitations in a cost-effective controlsystem, misstatements due to error or fraud may occur and not be detected.

 

*Changes in Internal Control over Financial Reporting*

* *

Duringthe quarter ended March 31, 2009, there were no changes in the ART’sinternal control over financial reporting that have materially affected, or arereasonably likely to materially affect, internal control over financialreporting.

 

**PART II**

** **

Item 1                                                                LegalProceedings

 

Except as set forth below, there have been nomaterial developments in the legal proceedings described in the ART’s Form 10-Kas filed with the SEC on March 10, 2009.

 

Bank Litigation

 

On June 18, 2008, the District Court dismissedcertain fraudulent transfer claims, voidable preference claims, and equitablesubordination and disallowance claims and entered final judgment on thoseclaims as well as certain claims dismissed in 2007 by the Bankruptcy Court. TheART timely filed a notice of appeal of that judgment and the appeal is beingbriefed by the parties in the Second Circuit Court of Appeals.

 

On May 6, 2009, the District Court issued anorder sustaining the ART’s aiding and abetting fraud and breach of fiduciaryduty claims; sustaining in part and dismissing in part the ART’s fraud claim,and dismissing the ART’s fraudulent concealment claims.  The DistrictCourt also sustained avoidance claims against lenders on margin loans to theRigases.  Under the current scheduling order, the trial on those claimsand the Bank Holding Company Act claim will commence on February 22, 2010.

 

At this time, the ART cannot predict the outcome ofthese proceedings or estimate the possible financial effect of theseproceedings on the ART’s financial statements.

 

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Motorola Litigation

 

OnAugust 22, 2007, plaintiffs moved for summary judgment to disallow aportion of the defendants’ claims against certain Adelphia debtors. Plaintiffs’motion is pending. Discovery is ongoing and the bankruptcy court has orderedthe parties to be ready for trial on the claims for equitable subordination andequitable disallowance on May 21, 2009.

 

Atthis time, the ART cannot predict the outcome of these proceedings or estimatethe possible financial effect of these proceedings on the ART’s financialstatements.

 

Sabres Litigation

 

On February 17, 2009, theDistrict Court for the Western District of New York issued a final judgmentgranting a permanent injunction against the prosecution of fraudulentconveyance claims against Key Bank N.A., Fleet National Bank, and HSBC BankUSA, N.A. (collectively, the “Sabres Banks”) by the ART in the BankLitigation.    The fraudulent conveyance claims against theSabres Banks involve Adelphia’s purchase of and payments on certain loans madeby the Sabres Banks to the Buffalo Sabres hockey team.  The ART filed atimely notice of appeal, and the appeal is being briefed by the parties in theSecond Circuit Court of Appeals.

 

At this time, the ARTcannot predict the outcome of these proceedings or estimate the possiblefinancial effect of these proceedings on the ART’s financial statements.

 

Litigation Indemnification Fund Litigation

 

Discoveryrelated to the JV LIF Claims is ongoing and an evidentiary hearing on themotion is now scheduled for June 9, 2009.

 

Atthis time, the ART cannot predict the outcome of these proceedings or estimatethe possible financial effect of these proceedings on the ART’s financial statements.

 

Item1A.                                                   Risk Factors

 

As of the date of this filing there have been nomaterial changes from the risk factors previously disclosed in our “RiskFactors” in the Form 10-K as filed March 10, 2009.

 

Item 6                                                                Exhibits

 
| 2.1*   | First  Modified Fifth Amended Joint Chapter 11 Plan of Reorganization of Adelphia  Communications Corporation and Certain of its Affiliated Debtors, effective  February 13, 2007 |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                   |
| 3.1*   | Restated  Certificate of Trust, dated February 13, 2007                                                                                                                           |
|   |                                                                                                                                                                                   |
| 3.2*   | Amendment  to Restated Certificate of Trust, dated March 15, 2007                                                                                                                 |
|   |                                                                                                                                                                                   |
| 3.3*   | [Second]  Amended and Restated Declaration of Trust, dated February 13, 2007                                                                                                      |
|   |                                                                                                                                                                                   |
| 3.4*   | Rules and  Procedures of Adelphia Recovery Trust                                                                                                                                  |
|   |                                                                                                                                                                                   |
| 4.1*   | Form of  Certificate Evidencing Undivided Beneficial Interests in the Assets of the  Adelphia Recovery Trust (Global Certificate)                                                 |
|   |                                                                                                                                                                                   |
| 4.2*   | Form of  Certificate Evidencing Undivided Beneficial Interests in the Assets of the  Adelphia Recovery Trust (Book Entry Certificate)                                             |
|   |                                                                                                                                                                                   |
| 10.1*  | Plan  Administrator Agreement, dated February 12, 2007                                                                                                                            |

 

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| 10.2* | Trustee  Compensation Agreement |
|-------|---------------------------------|

 

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*Incorporatedby reference to the Form 10 of Adelphia Recovery Trust (File No. 000-53209)filed April 30, 2008 and the amended Form 10 filed July 2, 2008.

 
| 31.1 | Section 302  Certification of Trustee                                                                                                                  |
|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.2 | Section 302  Certification of Trust Administrator                                                                                                      |
| 32.1 | Certification  of Trustee pursuant to 18 U.S.C. 1350 Section 1350, as adopted pursuant  to Section 906 of the Sarbanes Oxley Act of 2002          |
| 32.2 | Certification  Trust Administrator pursuant to 18 U.S.C. 1350 Section 1350, as adopted  pursuant to Section 906 of the Sarbanes Oxley Act of 2002 |

 

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**SIGNATURES**

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the Registrant has duly caused this Report to be signed on its behalf by theundersigned, thereunto duly authorized.

 

 
| Date: May 7, 2009                                 |   |
|--------------------------------------------------------|--------|
|                                                   |   |
| By: Quest Turnaround  Advisors, LLC                    |   |
| as Trust Administrator of  the Adelphia Recovery Trust |   |
| /s/ Jeffrey A. Brodsky                                 |   |
| Jeffrey A. Brodsky                                     |   |
| Member                                                 |   |

 

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